Unpaid Internships: The Great Labor Market Distorter

Economists have spent the last century delving into the macroeconomic effects of wages on the labor market. The supply and demand for labor are key market forces that helps best allocate labor resources in the most productive way. When labor is in demand and supply is limited, wages are higher. This can be seen in the high wages doctors and other skilled laborers receive. From the demand side, if a business is inefficient and requires lots of labor to produce a desired product or service, they will be unable to compete in the marketplace due to high costs and therefore they will charge high prices. A more efficient company will have lower labor costs and therefore they have the ability to charge lower prices.

Almost any business can be competitive and profitable when its labor cost is zero, since there are no financial restrictions on the quantity of labor a business will demand. This allows businesses, that could never be very competitive in the marketplace, to now be artificially and unfairly competitive because of the reduced labor costs. This restricts the flow of needed labor resources to companies and industries where the demand is stronger.

I’m sure the massive increase in the supply of labor and decrease in demand for labor in the current recession is a major influence on the increase of unpaid internships, which one statistic shows to have increased 350% since the beginning of the 2008 recession. Unpaid internships ?drive down the demand for non-free labor, and do away with a living wage. Simply put, slaves put paid workers out of jobs.

Unpaid internships distort the labor market signals on a microeconomic level as well. If the thousands of recent graduates from fashion schools did not go into long unpaid internships, the signal would be sent to the future students of fashion schools that there are limited paying job available. But these students do not get these signals because unpaid internship placements give the illusion that there are more jobs out there than exist. Schools are filling up their classrooms and increasing tuition, while graduates are struggling to find paying work. It’s not surprising universities love to promote unpaid internships.

Many students are studying things that can never result in living wages.

Unpaid interns work for months to years with their sights set on future employment that might not actually exist because it would never be profitable but for the free labor.